WHAT: The SEC on Dec. 17, 2008 held a meeting on optional annuity contracts in order to determine the securities status of index annuities. The commission voted 4-1 in favor of a modified version of its proposed Rule 151A. According to the approved rule, index annuities that fail to meet the test of excess interest would be deemed securities. Modifications from the original rule include the deletion of a three-year requalification rule, which deemed that a company must retest their product every three years to meet the SEC's test. Opponents of this stipulation said it could cause some index annuities to fall in and out of securities status throughout their lifetime. As a result, the commission dropped the rule, and companies need only qualify an index annuity once. The commission also modified the rule to be prospective to protect all index annuities currently sold and owned.
WHEN: The modified rule will go into effect Jan. 12, 2011.
NAFA'S STATEMENT ON 151A: "NAFA is disappointed in the commission's decision to adopt proposed Rule 151A. While we did not succeed in withdrawal of the rule, our activities over the past months did receive some redress under the new proposal. The removal of the three-year requalification has been removed, so once a product meets the test of exemption, it remains exempted. Implementation of the rule is prospective to protect all index annuities already sold and owned. Finally, the implementation of the rule has been extended to Jan. 12, 2011.
"Regardless, the commission's decision is flawed and based on assumptions that run afoul of the Securities Act of 1933 and prior Supreme Court decisions. Commissioner [Troy] Paredes stated it accurately in his lone vote against the proposal that by adopting this proposal, the commission is 'extending its reach beyond what it has been given by Congress, and it significantly deviates from the approach taken by courts and from previous positions taken by the commission.'
"NAFA's board of directors will meet on Thursday [Dec. 18, 2008] and will work with other industry associations to discuss its options. NAFA will provide more details about possible courses of action at its monthly IMO call on Dec. 18 at 1 p.m. Central time, and members of the board of directors will be on hand to answer questions.
"This is not the end, but the beginning of a lengthy process."
MORE INFORMATION: For the full text of Commissioner Troy Paredes' opening remarks and dissent regarding Rule 151A, click here
Do you want to share your thoughts on the SEC's decision and discuss the Rule with other agents? Click here to visit ASJ's Rule 151a Forum.
